Special effects maker VHQ Media plans Hong Kong IPO for China unit

People walk past seats at the Grand Theater at the Dalian Wanda Group Co. Oriental Movie Metropolis film production hub in Qingdao, China, on Tuesday, April 17, 2018. Wanda, a real-estate, retail and entertainment conglomerate, is opening its doors to an audacious 50 billion yuan ($7.9 billion) world-class film production hub, called the Oriental Movie Metropolis, or Dong Fang Ying Du. Photographer: Qilai Shen/Bloomberg Photo by Bloomberg

Movie and television post-production house VHQ Media Holdings Ltd plans to spin off its China operations and list the unit in Hong Kong to help fuel ambitious growth targets in the booming Chinese movie industry.

The Taipei-listed visual effects company expects to be ready for an initial public offering in the next 12 to 18 months, VHQ Chairman Low Kok Wah said in an interview in Taipei in June. Details, including planned size and underwriters have yet to be determined.

VHQ sees a share sale in Hong Kong as a way to boost its presence in China, the world’s second-largest movie market, as well as offering a better valuation, Low says.

“Our future growth in China will be funded in great part by Hong Kong,” he said. A unit traded in the city will help bring prominent investors and “add fire power.”

Low said he has talked with what he called the “big boys” about bringing them in as cornerstone investors in the last stage before the Hong Kong IPO, without identifying any of the companies. Alibaba Group Holding Ltd. and Dalian Wanda Group Co. are among the companies VHQ has previously worked with.

VHQ shares rose as much as 9.7 percent as of 12:40 p.m., the company’s biggest intraday gain since Apr. 30.

China is challenging North America as the world’s biggest movie market. Last year, China’s box office grew almost 30 percent to $8.6 billion, while North America’s slid 2.7 percent to $11.1 billion, according to analysis by Bloomberg Intelligence. Chinese movie-theater receipts overtook North America in the first quarter of this year, driven by strong releases during the key Lunar New Year holiday season, including Forever Young, starring Zhang Ziyi.

VHQ is also seeking to expand through the acquisitions of content producers, Low says, targeting a fivefold increase in sales in China over the next five years, driven by growing revenue from television and internet content. The nation currently contributes 65 percent to 70 percent of the company’s revenue.

VHQ controls less than 2 percent of the Chinese market for post-production and visual effects, according to Low. The company aims to increase its number of staff to 1,000 in China in the next two to three years from the current 400.

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Bloomberg